Deutsche Beteiligungs (ETR:DBAN) reiterated its guidance despite reporting a weak quarter, with management pointing to stock market volatility and a difficult valuation cutoff date as the main factors weighing on results.
The private equity firm said group income was negative EUR 20 million, or minus EUR 1 per share. Management said the result was driven primarily by valuation and multiple changes, with “pretty much 99%” of income attributable to those factors. The company also said net asset value per share was “mainly stable.”
Transaction Activity Remains High
Deutsche Beteiligungs highlighted a busy period for dealmaking, reporting seven transactions over the past eight months, including four acquisitions and three exits. The company said that, together with HIPP Technology Group and MAIT, it deployed more than EUR 500 million of enterprise value in bilateral transactions.
Management said the level of activity was notable given broader market volatility and reflected the firm’s reputation with business owners and sellers. The company also said it is in a “very comfortable liquidity position” after the closing of the duagon transaction at the beginning of January.
The firm also completed the sale of Kraft & Bauer, a company it had accompanied for seven years. Management said Kraft & Bauer shifted during that period from being mainly a supplier to the automotive industry to being mainly a supplier to medical technology companies.
According to the company, Kraft & Bauer had been marked at around 1.2 times 12 months ago, and Deutsche Beteiligungs was able to achieve roughly 2 times, depending in part on a small earn-out expected by the end of the year. Management said there could be additional upside depending on how the company continues to trade.
HIPP Investment Off to a Strong Start
Deutsche Beteiligungs said its new investment in HIPP Technology Group is “off to a flying start.” The company said it was introduced to Markus Hipp through Klaus Bauer of Kraft & Bauer, illustrating what management described as the benefits of maintaining a strong reputation and long-standing relationships.
The firm said it was able to preempt a structured sales process for HIPP, despite more than 50 interested parties seeking to participate. Management said Deutsche Beteiligungs bought out a family office and individual family investors from Switzerland who had previously invested when HIPP needed funding for capacity expansion.
Management said the HIPP investment is trading strongly and noted that while the company is active in medical technology, approximately 15% to 20% of its business is also tied to defense and robotics. Deutsche Beteiligungs said those areas provide additional growth optionality.
Software Exposure Draws Attention, But Portfolio Companies Beat Budgets
The company said its exposure to IT software and services has grown to about 30% following the closing of MAIT and the expansion of the Solvarus continuation fund. Management acknowledged that the higher exposure may raise questions in the current market environment, particularly given pressure on software valuations.
However, the company said it had reviewed its portfolio thoroughly and continued to see “very substantial growth.” Management said that, based on April figures, MAIT, Aquinet, Solvarus and Freiheit were all trading comfortably above their budgets.
“We see that AI for our companies right now is more a driver of growth than a destroyer of wealth,” management said.
Deutsche Beteiligungs also said concentration in its top five portfolio companies was relatively high at 37%. It noted that Freiheit and CPL are marked for exit, while Itallium has benefited from higher oil prices because it operates in the upgrading of used cooking oil.
Fund Services and Private Credit
In fund investment services, Deutsche Beteiligungs said performance was close to target, though earnings were affected by temporary placement agent fees related to the Solvarus continuation fund. Management said the continuation fund helped maintain profitability despite a delayed DBAG Fund IX.
The company said there could be a chance it goes to market with Fund IX later this year, depending on additional exits.
Management also discussed the firm’s private credit investments, saying Deutsche Beteiligungs has roughly EUR 75 million invested in private credit. The company said the portfolio is performing “very, very nicely,” has no software exposure and shows persistent growth in the underlying portfolio companies.
Deutsche Beteiligungs said its lines of credit have been significantly de-risked since the start of the year and that it expects to be redeemed at par on every investment.
Buyback Extended as Guidance Is Reaffirmed
The company said its negative net income was mitigated by its ongoing share buyback. Deutsche Beteiligungs has extended the buyback program to ensure it fully deploys the amount it previously committed.
Management said that, given the persistent discount to net asset value, buying back shares remains one of the more attractive ways to invest capital and reward shareholders.
The firm said its financial capabilities have increased, though liquidity is expected to decline somewhat due to the dividend, continued share buybacks and the deployment of capital into HIPP. Deutsche Beteiligungs said it plans further exits and aims to keep portfolio velocity high by selling companies that are no longer compounding positively and redeploying capital into more attractive opportunities.
Despite the weak quarter, management reiterated the company’s guidance and said Deutsche Beteiligungs is focused on rotating the portfolio toward areas where it expects growth to occur in Germany, even amid a subdued environment.
About Deutsche Beteiligungs (ETR:DBAN)
Deutsche Beteiligungs AG is a private equity and venture capital firm specializing in direct and fund of fund investments. Within direct investments the firm specializes in expansion capital, management buyout, emerging growth, middle market, mid venture, late venture, growth capital, add-on acquisitions, bridge financing, PIPES, management buy-ins for experienced executives, corporate spin-offs, succession arrangements and generational transition in a family-owned business, small and medium-sized companies, and pre-IPO stage investments.
